The Bangko Sentral ng Pilipinas (BSP) has approved two regulations designed to provide banks the opportunity to expand the range of microfinance products that they can offer to their clients. These regulations are Circular 744 on “Microfinance Plus” and Circular 748 on Micro-Agri Loans.
“Microfinance Plus” is defined as loans granted to the basic sectors, on the basis of the borrower’s cash flow, for their growing microenterprises and small businesses. These loans are from PhP 150,001 to PhP 300,000. This is a liberalization of the current limit of microfinance loans of PhP 150,000 as stated in Circular 272, BSP’s first issuance on microfinance. Since that first issuance, microfinance has flourished within the banking sector now with nearly 200 banks serving almost one million clients.
With the sustained increase in the microfinance exposure of banks, it can be surmised that microfinance loans have been effective in sustaining microenterprises and helping them grow. As microenterprises grow with their loan cycles, they may need larger loans that can not be currently served by microfinance institutions and may be deemed too small by traditional banks. Thus, the rules on “Microfinance Plus” respond to this need to particularly cater to the need of growing microenterprises.
The borrowers that will qualify as recipients of “Microfinance Plus” shall have a track record of at least two microfinance loan cycles in the PhP 50,000 to PhP 150,000 range demonstrating the success of the business, its increasing credit demand and subsequent increased capacity to pay. The borrower must also have a savings account. The delivery of Microfinance Plus will be utilizing microfinance principles and methodologies to ensure appropriate credit risk management and controls.
On the other hand, the new rules on the Micro-Agri Loans (Circular 748) are also a liberalization of the initial Micro-Agri Circular (Circular 680). The new rules reiterate the possibility of using the microfinance technology and methodology to effectively deliver other types of financial services including credit for small farming activities.
The new rules provide banks with the flexibility to innovate on the design of their micro-agri loan products to better attune them to the peculiarities and cycles of various types of crops. The BSP shall allow these innovations on a product approval basis provided that the banks demonstrate that they have the appropriate risk management systems in place. The new rules also emphasized the importance of the banks having the financial, managerial and technical capacity to offer micro-agri loans by complying with key prudential requirements.
These regulations further demonstrate the BSP’s commitment to create the environment which will allow banks to continually innovate to become more responsive to their client needs, diversify their income streams and ultimately increase the value of their services particularly to the unserved and underserved markets.